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Confounding and confusing events 4/4/22

The April edition of the American Legion Magazine had an interesting article about wages and inflation. Last year, average wages rose by about 4%, which was the highest wage increase since 2008, while inflation was up 7%, which is the largest in 40 years. Mark Zandi, Chief Economist at Moody’s Analytics, was quoted as saying: “I do think inflation is peaking.” He bases that, in large measure on the fact that nearly 25% of the rate of inflation is caused by shortages in new and used cars, while on normal purchases excluding the volatile commodities like food and energy costs has not gone up nearly as dramatically. Elise Gould, a senior economist at the Economic Policy Institute was quoted as saying, “Inflation is really about the supply chain bottlenecks.” I would comment that she may well be right, but its unlikely inflation will rapidly return to the levels of 2% or below enjoyed during most of the past decade, however, Dr. Zandi believes that it will be back below 4% by this time next year. Authors note a 4% increase in wages no doubt played a role in the inflation rate.

Another article in the Legion Magazine focused on China’s impact on our economy and provided some interesting statistics. 30.3% of our imports are from China; China has 85% of rare earth minerals refining capacity, it also has 29% of global manufacturing and 70% of US footwear is made in China. This gives you some insight into China’s impact on what we purchase, and obviously, on our economy. As I have mentioned before, this should cause the Chinese to take some stock in the positions they are asserting relative to the war in the Ukraine because clearly, we have a much greater impact on their economic well being than the Russians do.

I recently read in the Wall Street Journal an article which addressed inflation which many have done over the past several months, and I think it deserves to be quoted, “Economists attribute the surge in inflation to several factors: Disruptions to supply chains and shifts in consumption patterns caused by the pandemic, soaring oil prices driven in part by Russia’s invasion of Ukraine, a decline in the labor force due to early retirements, concerns about COVID and other factors, and strong demand fueled by repeated rounds of fiscal stimulus and ultra-low interest rates maintained by the Federal Reserve.” These are important because as people talk about inflation and its causes, they fail to focus on when these factors arose, and virtually everything, with the exception of the Ukrainian war arose during Mr. Trump’s term and simply carried over to Mr. Biden’s. I would also note that in all the reading I have done on this subject, I have not seen any suggestion by Republicans as to how they would curb inflation. Maybe they’ll take a trick from Nixon’s playbook – price controls.

The US has announced that it will boost gas deliveries to Europe as the war in the Ukraine continues on, as do the sanctions placed on the Russians. One of the most effective sanctions would be to cut off their market for oil and gas, however, that has a downside to it in that you must somehow replace what was being purchased from Russia from another source. It appears that the US can at least handle the gas side of it, although my sense is that it will take some significant period of time to ramp that up as we may not have adequate facilities, ports, nor supplies coming out of the ground, nor available ships. Another supply chain issue that we need to work our way through. This is a good step though because it will reduce, in the long term, Russia’s ability to garner revenue from this source. That said, it may also be part of a deal to end the war, that is for Europe to begin repurchasing significant supplies from Russia.

Larry Summers, a noted Harvard Economist wrote in February, 2021 that the macro-economic stimulus at the level we were engaging which was similar to World War II will set off inflationary pressures of a kind we have not seen in a generation. It appears that the American Rescue Plan may well be a major contributor, according to Summers for rising prices, in other words, inflation. Again, I would harken back to the fact that much of that stimulus occurred under the Trump administration and was further contributed to by the Biden administration. I would also note, it was supported by most Republicans. The fact is we do have significant inflation, and it likely will take some time to settle down, but we have been through this before, at least those of us who are in the baby boomer age group, and to think we would not have less than 2% inflation indefinitely is simply ignorant.

One hears a constant theme in the various commentaries about inflation and I think that that is very important that many people are expressing the same view as to the source of this issue. Again, I have not heard a solution.

Congress recently passed, after 200 failed attempts, an anti-lynching bill, which President Biden signed it into law. What was extraordinary was that it took that many attempts to deal with an issue that has reverberated throughout our society for well over 170 years.

It appears that the Ukrainians and Russians are making some headway towards peace. Mr. Zelensky has indicated that the Ukraine would at least consider adopting a neutrality policy, which obviously, coupled with his statement, that they would not join NATO should give some basis for continued negotiation of peace treaty, and to a large extent, the reality of peace.

The most recent jobs report indicates that more workers quit in February even as job openings stayed high. The data continues to indicate openings in the range of 11.3 million, while hiring was 691,000 in February and March, which still leaves you with an astounding number of job openings, and approximately 3 million people who have not returned to the workforce. Even if those 3 million people took some of the 11.3 million jobs, we still would have 8 million openings. It seems to me that one solution is to create an immigration policy which allows individuals into the US who meet the needs of our society in terms of skills, which would help those who are trying to immigrate, and those employers who need employees as well as our economy.

Senator Scott introduced a plan to increase taxes on working families to ensure everyone is paying tax. Democrats are saying thanks and Republicans are trying to ignore him.

While in New York a Republican judge in rural New York ruled against Democratic redistricting plan. We’ll see how it fares on appeal. It does seem ironic given the numerous Republican redistricting plans that are at least as bad around the country.

We learned recently that the US Canadian border will be opened as most restrictions are being dropped for those that are vaccinated. This is an important development both from a social and an economic standpoint and we hope that this will result in Canadian visitors coming back to Lake Champlain, Lake George, and into Saratoga for horse racing and many other amenities as well as to see them back shopping and eating in our restaurants. Welcome back.

Bill Owens is a former member of Congress representing the New York 21st, a partner in Stafford, Owens, Piller, Murnane, Kelleher and Trombley in Plattsburgh, NY and a Strategic Advisor at Dentons to Washington, DC.

The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.

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